Steady States and Determinacy of Equilibria in Economies With Infinitely Lived Agents

Timothy Kehoe, David Levine and Paul M. Romer

Chapter 18 in Joan Robinson and Modern Economic Theory, 1989, pp 521-544 from Palgrave Macmillan

Abstract: Abstract Joan Robinson frequently argued that neoclassical general equilibrium theory could not determine the rate of interest in intertemporal models (see, for example, Robinson, 1973). There were two aspects to this critique: First, neoclassical marginal productivity theory depended on the notion of an aggregate capital stock. Because of aggregation problems, notably reswitching, this concept could not be defined without resorting to circular reasoning except in the most unrealistic of models. Second, for any rate of interest there is a different short-period equilibrium in a neoclassical model. There are not enough equilibrium conditions to determine what this rate of interest is.

Keywords: Utility Function; Capital Stock; Consumer Surplus; Stable Manifold; Competitive Equilibrium (search for similar items in EconPapers)
Date: 1989
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DOI: 10.1007/978-1-349-08633-7_18

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